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Monopoly corrupts. Absolute monopoly corrupts absolutely.





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The golden age of beer innovation

The NEP-HIS blog has a nice discussion of a nice paper by Alessandro Nuvolari and James Sumner on innovations in the beer industry before 1850. There was rapid innovation without recourse to patents, even though patenting was an option to innovators.

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With respect to Christian's comment that "there was rapid innovation without recourse to patents," the paper states at the very beginning that the brewing industry used a combination of techniques, including openness, trade secrets, and patents. Their point seems to be that patents were used less frequently in the brewing industry than might be expected, though I am unsure of what they baseline is for expectations of patenting.
With respect to the beer innovation paper, I have to wonder whether the authors were overly focused on the brewing industry. I did a quick search for patent rates in a variety of industries, including insulators and several varieties of farm equipment. It appears that all these industries followed the same trend, that prior to the 1850's there was relatively low rates of patenting, that grew, and in many cases, spiked during the first portion of the 20th century.

There could be several reasons for the rate of patenting in these industries during this period. Indeed, there probably are several reasons.

Perhaps the first reason is that during this period the rate of innovation was growing rapidly because of the growth of innovation in related technologies. The brewing industry was helped by new metals and new technologies in an array of industries that helped the brewing industry. As these related industries expanding their patenting activities through the latter half of the 19th century, so too did the brewing industry.

Yet another reason may be the gradual displacement of the individual inventor by institutional inventors. It has been documented by several authors that prior to the period 1860-1880 that individual inventors were dominant in most industries. As companies capitalized on the inventions of individual inventors, corporate leaders decided they could no longer rely on the capricious nature of individual invention to continue the success they achieved from the patents licensed or purchased from these inventors. These corporate leaders created corporate laboratories to try to duplicate the success of the past, and to replace the patents that gave them a competitive advantage with new patents. Indeed, the growth of corporate research and development facilities was a direct result of the expiration of seminal patents in an array of industries.

In addition to these reasons may be other factors that drove the rate of patenting in the brewing industry. Ultimately, the brewing industry decided they needed to patent because they perceived a value to their industry from patents that would make their industry even more successful than it was without patents. The brewing industry had a measure of success with a lower rate of patenting. The brewing industry believed they had a much higher measure of success with a higher rate of patenting.

It would seem from the account given in the previous comment that it was innovation that stimulated the use of patents more than the other way around.

"Perhaps the first reason [for the rate of patenting] is that during this period the rate of innovation was growing rapidly because of the growth of innovation in related technologies."

This points to a self-reinforcing process by which innovation leads to more innovation independently of patent incentives.

"Yet another reason may be the gradual displacement of the individual inventor by institutional inventors."

The individual inventors would have been at a relative disadvantage due to inferior resources for invention marketing and patent enforcement. The benefits of taking up patent strategies for corporations likely has less to do with enhancing the rate of innovation compared to that of the individual inventors than with the exploitation of corporate means to enhance the profit from the monopoly privelage granted by patents. This is suggested by the emphasis made on replacement of expiring patents as opposed to research aimed at breaking new ground -- that latter being more characteristic of the individual inventors. In other words, the gradual displacement of the individual inventor by institutional inventors likely did more to improve corporate profitability and the rate of patenting than to stimulate actual innovation.

Adam_Smith:

Until the latter half of the 19th century, corporations routinely filed for patents, if they could get them, but patents were not a focus. At least two factors changed corporate attitudes toward patents.

First, prior to the end of the 19th century, patents were not seen as all that powerful in terms of preventing competitors from making copies of an invention. That changed in the latter half of the 19th century due to a series of court decisions, which caused companies to value patents for the protection of innovation.

Second, much of the innovation for the industrial age, particular some of the most valuable, ground-breaking innovations, were by individual inventors, who routinely patented their work since it was the only way they had a chance to profit from their inventions. Corporations saw the value of having unique, patented technology, though the relative term of such patents were short.

However, as early patents expired, corporations recognized that since they had relatively little in-house R&D capability, they were at the mercy of independent, outside inventors for future innovation. The rise of corporate research and development capabilities is directly linked to corporate desires to have new technology to replace technology previously covered by patents to maintain a unique competitive edge.

The vast majority of innovative technologies that broke new ground throughout the industrial era and into the technological era has been patented and increasingly in-house, as the role of independent inventors has become, though not negligible, greatly reduced.

The growth of corporate research labs in response to the corporate desire for developing new, patented technologies has been documented in a number of places.

Conversely, there has been speculation that if patents were ever to disappear, many companies, particularly in mechanical technologies, would eliminate their in-house R&D capability in favor of copying competitors, eliminating tens of thousands of engineering positions that would be unnecessary if the only need is to copy rather than to break new ground.

From a Libertarian perspective, the only reason these jobs existed was to develop new, patentable technology. Obviously, from a Libertarian perspective, and regardless of whether it might be true or not, if such innovations were needed, the market would provide them. Corporate bean counters do not see it that way. If patents are not needed, then why are design engineers needed? R&D departments are often the first departments cut during down-sizing, since obviously they do not add to the bottom line, from an MBA perspective. The elimination of patents would eliminate the only justification for new, ground-breaking technologies in many industries.

""Perhaps the first reason [for the rate of patenting] is that during this period the rate of innovation was growing rapidly because of the growth of innovation in related technologies.""

"This points to a self-reinforcing process by which innovation leads to more innovation independently of patent incentives."

Or it is indicative of leveraging of patented technology to find more innovations sufficiently novel to be patent-worthy.


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